The government of Kazakhstan has moved to double its stake in the rich Caspian Sea oil find. KazMunaiGaz (KMG) will increase its share to 16.8 percent of the Caspian Sea Kashagan oil project. Previously, Kazakhstan’s four major western partners, Italy’s Eni SpA (NYSE:E), Exxon Mobil (NYSE:XOM), France’s Total SA (NYSE: TOT) and Royal Dutch Shell (NYSE: RDS A) each held 18.5 percent in the project, with two other partners Conoco Phillips (NYSE: COP) and Inpex of Japan, holding the reaming shares. President Nazarbayev of Kazakhstan announced that the agreement will be “A restoration of justice.”
The Kashagan project, which lies offshore in the Caspian Sea, was discovered in 2000, but has been very difficult to extract. The project has drawn a consortium of the major international oil companies, International Giant Oil (OOTC: ILGL) to drill the estimated 37 million barrels of oil located in the field. Kazakhstan currently has an output of 3 million barrels per oil a day, but was unhappy with delays and cost overruns in the project.
The Kazakhstan government brought pressure to bear on the drillers, notably Eni SpA, and subsequent meetings led to an agreement for Kazakhstan to purchase a larger share of the project. Kazakhstan will pay a total of $1.78 billion to purchase the larger stake from the other partners. The Caspian field is expected to produce 1.5 million barrels a day when it comes online in 2010.
KazMunaiGas is the national oil producer for Kazakhstan; the Kazakhstan government responded to internal political pressure that criticized the original deal with the consortium as earning too little profit for Kazakhstan, and a disproportionate share to the western members of the group.
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